The final divorce settlement may look like the finish line of a race, but if you’re sprinting toward that goal without stopping to consider how various decisions can affect your future, you could ultimately end up doing more harm than good. Aside from moving from a joint tax return to filing as single, certain aspects of the division of property can have additional tax implications. If you’re considering a divorce in Illinois, you may be well-advised to slow your sprint down to a walk.
Was an investment made in your spouse’s name, but you were awarded it during property division? Or are you planning to refinance your house in only your name? Both of these actions can affect what you may owe to or receive from the IRS. Even collectively deciding to sell your home and split the profit can have tax implications.
However, simply because something will affect your taxes does not mean that it is a bad move to make. Especially when dealing with a house or other real estate, virtually every option may have a tax impact. A clear and astute understanding of your financial standing can help you determine what move will have the best outcome when tax season rolls around.
Before you can truly understand what the impact on your taxes may be, make sure that you have a thorough understanding of your finances and any debt that you may have to take on following the division of property. If a certain division makes the most financial and tax sense for you — such as selling the home — but your spouse resists, it is possible to work out a suitable compromise with a third-party, impartial mediator. If this resolution is unsuccessful, it may be necessary to proceed to litigation where an Illinois judge will have the final say on the settlement, although your taxes may not ultimately be what is on his or her mind.
Source: The Huffington Post, “7 Common Mistakes to Avoid in Divorce or Separation“, Cheryl and Joe Dillon, Oct. 28, 2014